Free movement of capital: Commission refers Poland to Court of Justice over special rights granted to the State in certain companies

The European Commission has decided to refer Poland to the European Court of Justice with respect to the Act on Special Powers of the Treasury. It considers that this Act and the exercising of the powers it grants in companies of special importance for public order or public security, together with implementing ordinances that grant special rights (consisting of the right to veto certain key management decisions as well as the right to appoint observers in the companies concerned) to the Polish State in currently thirteen national companies of special importance, infringe rules on the free movement of capital and the freedom of establishment in violation of the EC Treaty (Article 56 and 43 respectively). These thirteen companies operate in several sectors including copper ore mining, media/audiovisual, railway infrastructure, electricity, gas and petroleum, motor spirits and diesel oil.

The Commission considers that special rights conferred on the State in those companies constitute an unjustified restriction to the free movement of capital (Article 56 EC), in so far as they are liable to deter potential direct and portfolio investment in the companies concerned.

The Polish Act on Special Powers of the Treasury and their Exercise in Companies of Special Importance for Public Order or Public Security (hereinafter: Act on Special Powers) of 3 June 2005 (and two implementing ordinances listing the companies concerned and defining the role of state observers on the management board) confers on the State special rights in thirteen important Polish companies in copper ore mining, media/audiovisual, railway infrastructure, electricity, gas and petroleum, motor spirits and diesel oil sectors. The special rights include the veto right regarding key management decisions provided such a resolution "undermines the established order or public security": disposal of core assets, dissolution of the company, transfer of its seat abroad, change of activity etc., and the right to appoint an observer in each company, who has access to documents related to the above decisions.

Article 58.1b) EC expressly stipulates the right of Member States to take measures which are justified on grounds of public policy or public security. While for the copper ore mining and processing as well as for the telecommunication (enabling transmission of public radio and television signals) and railways infrastructure sectors, the transactions in the sense of the provisions of the Act on Special Powers would not seem to be such as to undermine public order or public security. Neither do the measures foreseen by the Act regarding the energy sector (electricity and gas as well as petroleum, motor spirits and diesel oil) seem suitable or proportionate to meet the alleged objective of public security and public order.

The special rights provided by the Act on Special Powers grant powers to the Treasury to veto strategic management decisions in the companies of special importance. They therefore restrict the possibility for other owners to effectively participate in the management or control of the company and thus constitute a restriction to direct investment in the companies concerned. Since those constraints would also restrain investors from buying non-controlling stakes for portfolio investment purposes, they may in addition be considered as restrictions on portfolio investment in the companies concerned. These special rights can be considered to constitute a restriction to the free movement of capital and freedom of establishment (Article 56 and 43 of the EC Treaty respectively).

The Commission does not question the possibility of introducing restrictions based on public security and public order considerations under certain circumstances, as foreseen in the Treaty. However the blanket measures covering a large number of sectors and implying the powers to veto all important decisions of a company are considered not suitable and disproportionate. Further, the Act contains provisions on the conditions for the implementation of special rights, which are not sufficiently precise, confer excessive discretionary power to the State and fail to meet the required standards of legal certainty.

The Commission consequently takes the view that the Act on Special Powers is contrary to the principle of free movement of capital and freedom of establishment and that there is no justification for this violation.

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